Lamarre Proulx, J.T.C.C.:—These appeals concern reassessments of tax for the years 1982, 1983, 1984 and 1985.
The questions in issue are the following:
(a) whether the appellant's breeding of dogs and operating of a kennel is a farming activity;
(b) whether the appellant's activity may be divided into two: the breeding of dogs which would be a farming activity and the operating of a kennel which would be a non-farming activity;
(c) if I were to find that the activity cannot be divided but that it is one farming activity, whether the farming activity is the taxpayer's chief source of income.
The facts upon which the respondent relied on in reassessing the appellant are described in paragraph 6 of the respondent's reply to notice of appeal and are the following:
In reassessing the Appellant for his 1982, 1983, 1984 and 1985 taxation years, the Respondent relied, inter alia, upon the following assumptions of facts:
a) During the years under appeal, the Appellant was a full-time employee of I.B.M. Canada Ltd.;
b) Since 1981, the Appellant operates a farming operation under the firm name of “Stoneleath Kennels Reg'd". The activities of the Appellant consist of boarding dogs and the breeding of pure bred dogs for resale;
c) The Appellant carries on his activities at 28 Barnes Road, R.R. #2, West Brome, where he resides with his family;
d) The boarding and breeding activities are looked after by the Appellant and his family;
e) There is but one accounting or bookkeeping system for both activities; f) The results of both activities are presented in the same "statement of "business' income and expenses” in the T-1 for each year under appeal;
g) The Appellant's income from employment and farming during the period 1981 to 1985 were as follows:
| Employment | Farming |
| 1981 | $32,431.55 | ($ 2,230.53) |
| 1982 | $39,037.34 | ($10,685.46) |
| 1983 | $41,638.00 | ($13,417.80) |
| 1984 | $42,947.33 | ($11,031.50) |
| 1985 | $44,759.18 | ($ 9,977.71) |
h) The Appellant has indicated that he is satisfied with a 25% occupation rate for his kennel;
i) The Appellant's chief source of income was neither farming nor a combination of farming and some other source of income;
j) The capital investment for the kennel, as declared by the Appellant, consists of a capital cost of $10,000.00 for the kennel. The latter purchased $300.00 of equipment and he uses a vehicle with an attributed capital cost in the amount of 2,848.00.
The reasons that the respondent submitted, to sustain the reassessments, as per paragraphs 8 and 9 of the said Reply to Notice of Appeal, are the following:
8. He submits that the losses arising from the business operated under the firm name“ Stoneleath Kennels Reg'd" are farming losses;
9. He further submits that the Appellant's chief source of income during the years under appeal was neither farming nor a combination of farming and some other source of income, and therefore the Respondent correctly applied the provisions of subsection 31(1) of the Income Tax Act.
As it appears from the reply to the notice of appeal and from the reassessments themselves, the respondent does not dispute that the appellant had a reasonable expectation of profit or, in other terms, that the appellant was carrying on a business. However, he assessed the appellant on the assumption that the whole of the business undertaking of the appellant was farming and that farming was not the appellants chief source of income. The appellant submits that the whole of his business is not a farming activity. He pleads alternatively that if I were to find that there is some farming activity, that his business could be divided into two activities: the breeding of dogs, which would be a farming activity, and the operation of a kennel, and that the farming activity would be his chief source of income.
There are not many cases concerning the breeding of dogs and the operating of a kennel; however, there are a few. There is the case of Walker v. M.N.R., 76 D.T.C. 1224. This case concerns the operation of a kennel by a medical doctor. There is also the case of Escudero v. M.N.R., [1981] C.T.C. 2340; 81 D.T.C. 301. That latter case concerned breeding operations. There was no mention in either of these two cases that these undertakings could have been considered farming activities.
As mentioned by counsel for the respondent, before Sniderman v. M.N.R., [1989] 2 C.T.C. 2027; 89 D.T.C. 323, where it was found by Judge Teskey of this Court that the said activities were not farming activities, the only other case that has discussed the possibility of the breeding of dogs being a farming activity is Stewart v. M.N.R., [1964] C.T.C. 45; 64 D.T.C. 5023 at 53 (D.T.C. 5028) where Mr. Justice Noël of the then Exchequer Court of Canada said the following:
Now this section (which limits the deduction of expenses incurred in farming) will apply only if a taxpayer's chief source of income for a taxation year “is neither farming nor a combination of farming and other source of income" and it would seem that here (providing the raising, breeding or exhibiting of the taxpayer's dogs fall within the definition of farming under the Act, which is another matter with which I shall deal later) this taxpayer meets with this requirement, his chief source of income being other than farming or a combination of farming and some other source of income as for the years under review, his only receipts come from investment income in the sum of $3,174.48 for 1957 and $5,230.50 for 1958 and there are no receipts whatsoever from his kennel operations. Under the Act, as it stood in the years 1957 and 1958, this taxpayer, under Section 13 of the Act, would be entitled to half of his farming losses for 1957 and his entire farming losses for 1958 provided, however, his kennel operations fall within the definition of “ farming” under the Act which (according to Section 139(1)(p)) "includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fruit growing and keeping of bees. . .”. Now the appellant never said that he was raising or breeding or exhibiting dogs either for sale, exhibition or for service which is what the words, " livestock raising or exhibiting” may mean in the above definition, if the word “ livestock” comprises dogs. As a matter of fact he denied that this was his object maintaining right along that he did not breed these dogs to sell them, nor did he exhibit them for prize money, but that his sole purpose was to qualify as many dogs as he could as champions for the purpose of using them in his advertising business and he therefore, on this basis alone, cannot benefit from the deductions provided by Section 13 of the Act.
As can be seen by this excerpt, Mr. Justice Noël found that in the circumstances of the case, he did not have to decide whether the breeding of dogs was a farming activity or not. It should also be said at this juncture that the respondent's Interpretation Bulletin IT-322R, as to the meaning of farming, has never included the breeding of dogs as a farming activity. In this Interpretation Bulletin, the meaning of farming is given as follows:
For purposes of the Act, the word “farming” is given a wide definition by subsection 248(1). It includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees. This list is not exhaustive and it has been decided by our courts that the word "farming" also includes tree farming and the operation of a wild game reserve. In certain factual circumstances it is considered that "farming" includes raising fish, market gardening, the operation of nurseries and greenhouses, and the operation of a chick hatchery. However, “ farming” does not include trapping or an office or employment under a person engaged in the business of farming.
Counsel for the respondent stated that not all cases of dog breeding and the operating of a kennel would be considered by the respondent as a farming activity. It is the case here because of the specific circumstances of the case: that is, the time invested, the quality of care and the good results obtained by the appellant in his breeding activities, the whole being in a rural setting that would indicate that this activity is a farming activity.
He also refers the Court to cases where breeding of race horses (Mohl v. The Queen, [1989] 1 C.T.C. 425; 89 D.T.C. 5237), fish raising (Les Immeubles Dramis Inc. v. M.N.R., [1981] C.T.C. 2568; 81 D.T.C. 512), were found to be farming activities. With respect to the breeding of race horses this does not cause any difficulty of interpretation since it is a specifically mentioned activity in the Act as being included in the meaning of farming. About fish raising being a farming activity, I tend to believe that the tribunal may have included it in the meaning of farming because the fish was sold to restaurants for their meat (page 2574 (D.T.C. 516). Though this element is not expressly mentioned in the ratio"decidendi of the case, I believe that it comes out clearly from the language used:
The fact that fish are raised in the water rather than on land or in the air has nothing to do with the point at issue. In my view, there is no real distinction for income tax purposes between growing, keeping and catching marine animals— that is, fish-breeding—and performing the same activities with respect to other animals. Furthermore, the definition of" farming” found in section 248 of the Act is not strictly limited to the components included therein. In my opinion, there would be no difficulty in adding the words "fish raising" in the circumstances of this appeal when the similarities with other methods of livestock raising are taken into consideration.
Farming is defined in paragraph 248(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act") as follows:
“Farming” includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees, but does not include an office or employment under a person engaged in the business of farming.
And in French:
“agriculture” comprend la culture du sol, l'élevage ou l'exposition d'animaux de ferme, l'entretien de chevaux de course, l'élevage de la volaille, l'élevage des animaux à fourrure, la production laitière, la pomoculture et l'apiculture, mais ne comprend pas une charge ou un emploi auprès d’une personne exploitant une entreprise agricole.
it is true, as submitted by counsel for the respondent, that this definition of farming is not exhaustive and that an activity that is not specifically mentioned in the definition as being a farming activity could be included in that definition. It does not follow from this, however, that I can include in the meaning of farming any kind of activity. It has to be an activity that is usually understood as being a farming activity. Some activities are included in the definition of farming that, had they not been specifically included may not have been found by the courts to usually belong to farming, such as maintaining of horses for racing, and fur farming. The legislator has included these activities in the meaning of farming to extend its meaning. It is the legislator's prerogative. Where the alleged farmer says forcefully that his activities are not farming activities and that there is no expert evidence to the contrary, I cannot conclude that an activity is within the meaning of farming unless I am convinced that this activity is, in its usual meaning, a farming activity or that it is an activity described in the extended meaning.
I am not convinced that the breeding of dogs to be sold as pets and the operation of a kennel are usually understood as being farming activities nor that they may be assimilated to one or the other included activities extending artificially the meaning of farming such as fur farming or horse racing. Had these dogs been raised or were usually raised to be farm animals, that may have influenced my decision in favour of the respondent's position, but there was no evidence of that, in the case at bar. To the contrary, these dogs that were golden retrievers and Clumber spaniels, were bred to be pets. If I look at the list of the persons who have purchased the dogs, (Exhibit A-4) they were for the major part urban residents. I also find that the case decided by my colleague Judge Teskey in Sniderman, supra, supports my findings.
In view of the conclusions reached that the activity engaged by the appellant was not a farming activity, I I do not have to decide on the other issues raised as alternative issues.
The appeal is allowed with costs.
Appeal allowed.
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